Emerging trends in MENA and around the globe
Castlereagh’s Market Monitor collection offers top-tier news and analysis of future trends and buried topics in business, geopolitics, energy, finance and more. Utilising on-the-ground sources and including commentary from some of the region’s top analysts and policy experts, gain a fresh perspective on developments in the Gulf, Middle East, North Africa and further afield.
Distributed renewable energy generation offers many opportunities for power sectors in the Middle East, including the ability to increase the resilience of the power system and reduce both the cost of subsidies – which weigh heavily on states’ budgets – and the need for grid expansion. However, state-owned electricity utilities are concerned about losing revenue and their monopoly of the sector. Changes to the business models, tariffs and culture is the best way for utilities to remain relevant.
Saudi Aramco’s recent proposed investment in Sempra Energy’s liquefied natural gas (LNG) export project in Port Arthur, Texas, is indicative of the growing power of the US in the global energy market. The surge in US oil production has already had a major impact on the Middle East: the oil price crash which began in 2014 put an end to a 12-year period of budgetary comfort for MENA oil exporters, largely because of the extra US output. That country’s rapid climb up the ranks of the world’s LNG exporters is now an important factor in the calculations of many regional economies in which natural gas is of strategic importance, whether in the domestic energy mix or as an export commodity.
The potential for grid interconnectivity and increased cross-border electricity trading in sub-Saharan Africa is significant. In addition to boosting energy security, it would likely bring down electricity costs and enable greater amounts of renewable energy to be integrated into the power mix, while also providing widespread investment opportunities for companies operating across the power sector. That said, infrastructure bottlenecks, regulatory hurdles and faltering political support remain hurdles to the successful realisation of a pan-African power grid.
Field Marshall Khalifa Haftar’s April attack on Tripoli and the Government of National Accord has deepened the political disintegration of Libya. Foreign powers have at times violently intervened in the country and in other instances pushed for peaceful solutions. Renewed internal fighting has increased competitive pressures externally, potentially undoing the restrictions on oil sales and revenues that previously restrained the antagonists. Moves to gain control of Libya’s hydrocarbon assets and deprive their opponents from controlling them seems to be the logical next step.
President Donald Trump’s Executive Order declaring a national emergency over threats from the unrestricted acquisition or use of ICT in the US on May 15, and the barring of US businesses from purchasing Huawei products and selling critical technology to the Chinese telecoms giant, are intended to protect the country and, arguably, Western democracies from foreign (China) adversaries who are creating and exploiting vulnerabilities in their ICT infrastructure. However, Trump’s move should also be viewed within the broader context of the growing tensions between the US and China, with the specific measures taken against Huawei being part and parcel of their ongoing trade war.
One of the key questions facing Egypt as it emerges from a three-year IMF reform programme is how resilient it will be to any future external shocks. The country’s deal with the IMF has yielded marked improvements to many of its main macroeconomic indicators, which should provide a platform for a sustained period of high growth, underpinned by inflows of foreign direct and indirect investment. However, many of the fundamental weaknesses in the economy persist.
Renewable energy deployment is increasingly reliant on independent power producers through power purchase agreements. Yet, off-takers are finding themselves committed to purchasing power at long-term and high prices in a dynamic market, while assuming all the risks. This is an impediment both for expanding renewables and achieving lower electricity prices. Future renewables growth will require a new approach to power purchase agreements as well as investment in mitigating risk and minimising generation costs.
Increased private participation in Iraq’s power sector could see generating capacity triple over the next decade. However, structural reforms, not more infrastructure, are required if Iraq is to put an end to power shortages.
Oil prices should rise above the $65-$70 per barrel range they have been hovering at for the last several weeks. The markets have become comfortable with the supply side thanks to the US’ “perpetual” crude oil production machine, although roughly 2.5m barrels per day (bpd) of crude output is in danger of being disrupted in Libya, Venezuela, Iran and Russia. On the other side of the equation, uncertainties over US-China relations have cast a pall on the outlook for the world economy and crude oil demand. While unfolding events may not have any impact in the short run, if indeed at all, OPEC/non-OPEC spare capacity, at 2-2.5m bpd, is limited. Any outage will stress the world oil markets – particularly the Saudis – who have pledged to make the market whole in the event of any disruption.